Impact of intellectual capital on earnings management and financial performance

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Intellectual capital is widely recognized as one of the most important assets in modern businesses, but it is only reported in the financial statement in certain conditions. This study aims to evaluate the role of value-added intellectual capital (VAIC) in moderating the relationship between earnings management and financial performance. This research uses data from non-financial companies listed on the Singapore Exchange and Indonesia Stock Exchange covering the period of 2016–2021, with a total of 3,303 firm-year observations. VAIC is measured using Pulic’s intellectual capital model and earnings management using the Kasznik Model (1999). This study uses multiple linear regressions to examine the relationship between variables. The findings indicate that earnings management has no significant effect on the financial performance of Singapore, but it has a significant positive effect on the financial performance of Indonesia. Furthermore, this study discovers that intellectual capital moderates the relationship between earnings management and financial performance in both countries differently, that intellectual capital moderation is positive (negative) for the Singapore (Indonesia) sample. These findings suggest that the role of intellectual capital varies depending on stock exchanges; Singapore is considered a developed country in Southeast Asia, whilst Indonesia is considered a developing one. This study concludes that the role of intellectual capital in the relationship between earnings management and financial performance varies between market characteristics and across industries.

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    • Table 1. Descriptive statistics for Singapore (N = 1,301)
    • Table 2. Descriptive statistics for Indonesia (N = 2,002)
    • Table 3. H1 regression result – Data for Singapore
    • Table 4. H1 regression result – Data for Indonesia
    • Table 5. H2 regression result
    • Table 6. Regression of firms in Singapore and Indonesia
    • Conceptualization
      Gizela Eleonora Hermando, Felizia Arni Rudiawarni, Dedhy Sulistiawan, Elżbieta Bukalska
    • Data curation
      Gizela Eleonora Hermando
    • Formal Analysis
      Gizela Eleonora Hermando, Felizia Arni Rudiawarni, Dedhy Sulistiawan, Elżbieta Bukalska
    • Investigation
      Gizela Eleonora Hermando
    • Methodology
      Gizela Eleonora Hermando, Felizia Arni Rudiawarni, Dedhy Sulistiawan
    • Writing – original draft
      Gizela Eleonora Hermando
    • Project administration
      Felizia Arni Rudiawarni
    • Supervision
      Felizia Arni Rudiawarni, Dedhy Sulistiawan, Elżbieta Bukalska
    • Validation
      Felizia Arni Rudiawarni, Dedhy Sulistiawan, Elżbieta Bukalska
    • Writing – review & editing
      Felizia Arni Rudiawarni, Dedhy Sulistiawan, Elżbieta Bukalska
    • Visualization
      Dedhy Sulistiawan